Freight rates for tankers to soar

Freight rates to carry oil are expected to further firm up due to rising crude oil prices and a growing shortage of tankers. This, industry experts say, will help shipping companies earn more.

Freight rates for tankers to soar on crude surge

Freight rates to carry oil are expected to further firm up due to rising crude oil prices and a growing shortage of tankers.This, industry experts say, will help shipping companies earn more.

The freight rate for very large crude carriers (VLCCs) has more than doubled from an average of $59,652 (Rs 23,86,080) per day last month to $1,29,052 (Rs 51,62,080) on May 15 The rate for Suexmax vessels has surged by 53 per cent from $52,866 (Rs 21,14,640) to $81,073 (Rs 32,42,920) and that of Aframax vessels by 40 per cent from $31,060 (Rs 12,42,400) to $43,528 (Rs 17,41,120) during the period.

Industry experts say the demand for oil tankers will be high in the next two to three years as availability is low due to shipping companies' failure to anticipate demand.

However, new orders will take at least three-four years to be executed due to the huge backlog with global shipbuilding companies. Also, all single-hull vessels have to be phased out by 2010. At least 40 per cent oil tankers fall in this category.

Also, oil tankers older than 20 years are being junked because of high prevailing scrap prices and fresh replacements are unlikely to keep pace with the rising demand. This, experts believe, will keep the freight rates firm and steady. Out of India's fleet of around 850 vessels as on January 2008, 40 are single-hull vessels.

S Hajara, chairman & MD, Shipping Corporation of India, said: "Oil tanker freight rates will be firm and steady in the next few years as the demand-supply situation will be under pressure on account of phasing out of all single-hull vessels by 2010 as required by the IMO (International Maritime Organisation) guidelines. Moreover, the energy requirement of various nations is rising substantially, requiring transport of more crude oil. Even at such high freight rates, the movement of crude oil has not witnessed any slowdown".

To capitalise on high freight rates, Indian shipping lines like Shipping Corporation of India, Great Eastern Shipping and Mercator Lines are planning to expand their fleet size.

Shipping Corporation of India is planning to invest around Rs 350 crore in the next two years to acquire new vessels while Great Eastern Shipping is expected to commit a capital of nearly Rs 4,900 crore to expand its fleet size.